Figure 9.1: Cost curves for .

K, Units of capital per y ear

Figure 9.2: Isocost Lines

$150
15 =
$10

$100
10 =
$10

$50
5=
$10

$50 isocost $100 isocost $150 isocost

$50 $100 $150

= 10 = 20 = 30
$5 $5 $5
L, Units of labor per year
© 2009 Pearson Addison-Wesley. All rights reserved.
 Figure 9-3: Cost Minimization
10
K, , Units of capital per year

7 isoquant
6
$50
5= 5
$10
4

3
K=2.5
2

1
$50 isocost
0
0 1 2 3 4 L=5
5 6 7 8 9 $5010
= 10 11 12
$5
L, Units of labor per year
© 2009 Pearson Addison-Wesley. All rights reserved. 7-3
Figure 9-4: Cost Minimization with an increase in wages
10
K, Units of capital per year
9

8 isoquant

7
$70.71 isocost
6

4 y
Ky =3.5
3 x
Kx =2.5
2

1
w=10 w=5 $50 isocost
0
0 1 2 3 y=3.5
L 4 Lx5=5 6 7 8 9 10 11 12
-1 L, Units of labor per year

© 2009 Pearson Addison-Wesley. All rights reserved. 7-4

 Figure 9-5a: Long-run expansion path (linear)
K, , Units of capital per year 15

12.5

Expansion path
isoquant
10

isoquant
C
7.5

isoquant B
5

A
2.5

0
0 5 10 15 20 25 30
L, Units of labor per year

© 2009 Pearson Addison-Wesley. All rights reserved.

 Figure 9-5b: Long-run expansion path
(capital becomes less productive)
K, , Units of capital per year 15

12.5

10

C Expansion path
7.5
B
5.5

5
A
3
2.5

0
0 4 5 9 10 15 20 25 30
L, Units of labor per year
 Figure 9-5c: Long-run expansion path
(labor becomes less productive)
K, , Units of capital per year 15

12.5

Expansion path

10

7.5 C
7

5 B
4

2.5 A
1.5

0
0 5 7 10 12 15 16 20 25 30
L, Units of labor per year
Figure 9-6: LRAC as envelop of SRAC

q3
 Figure 9-7a: Economies of Scope

Linear PPF PPF with Economies of Scope

200 200
Points on problem sets

Points on problem sets

200 200
Points on exams Points on exams
Figure 9-7b: Diseconomies of Scope

PPF with Diseconomies of

200 Scope
Points on problem sets

200
Points on exams